EQUITY DEMANDED PIERCING THE CORPORATE VEIL TO HOLD SHAREHOLDERS PERSONALLY LIABLE FOR BREACH OF CORPORATE LOAN
Equity demanded that the court pierce the defendant company’s corporate veil and find its two principals personally liable to plaintiff for breach of a loan agreement where company lacked sufficient capital to undertake the project at issue or repay the loan and, inter alia, its finances were intermingled with those of its principals. The court entered judgment for plaintiff.
Defendant Paselo Logistics, LLC is in the scrap metal demolition, brokerage and resale business. Defendants Pasquale Scalleat and Angelo Franco are the sole owners of Paselo. Ronald J. Gerner is sole owner and president of plaintiff, Reivia Ashley, LLC. Gerner worked primarily in the investment banking and commercial real estate industries before his involvement in the project at issue in this case. Reivia reached a loan agreement with Paselo pursuant to which Reivia financed Paselo’s purchase of a large site of a former coal processing facility known as the Huber Ashley Breaker. Ultimately, Reivia sued Paselo, Franco and, iner alia, P. Scalleat for alleged breach of the loan agreement. There was no dispute that Reivia and Paselo entered into the loan agreement for approximately $1.2 million and that P. Scalleat and Franco individually executed the loan agreement as principals of Paselo. Moreover, the court found it clear that Paselo defaulted under the agreement in more than one respect, including its failure to pay the principal balance. Here, the court addressed Franco’s and Scalleat’s potential liability, noting that generally, members of a Pennsylvania limited liability company are not personally liable for the other debts, obligations or other liability of the LLC. Pennsylvania law recognizes a strong presumption against piercing the corporate veil. However, in appropriate circumstances, the general rule does not apply, and a court may pierce the corporate veil as an equitable remedy that disregards the existence of a corporation to make the corporation’s individual principals and their personal assets liable for the debts of the corporation. There is no clear test for determining if piercing the corporate veil is proper, the court explained. Courts may consider several factors, including undercapitalization, failure to adhere to corporate formalities, the insolvency of the entity and, inter alia, substantial intermingling of corporate and personal affairs. While piercing the corporate veil is an extraordinary remedy, it does not require a specific showing of fraud. The court was persuaded that piercing Paselo’s corporate veil was appropriate. The company lacked sufficient capital to undertake the Huber project or to repay the loan. Moreover, the company was not able to maintain the Huber site in compliance with environmental requirements or to timely satisfy various obligations such as municipal taxes. Additionally, Paselo’s affairs, particularly its finances, were intermingled with those of its principals, Scalleat and Franco. Finally, the court found that Paselo’s disregard of corporate formalities were more significant than a mere failure to adhere to the process formalities imposed by statute or organic rule. As such, equity demanded that the court pierce Paselo’s corporate veil and find Franco and Scalleat personally liable to Reivia for breach of contract, the court concluded.
Reference: Reivia Ashley, LLC v. Paselo Logistics, LLC et al, PICS Case No. 17-1882 (E.D. Pa. Dec. 1, 2017), Digest of Recent Opinions, Pennsylvania Law Weekly, 41 PLW 19, (January 2, 2018).
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